Founders and VCs share 8 lessons for raising a seed round in 2019
In this series, “Founder’s Field Guide,” we’ll tackle topics that are top-of-mind for entrepreneurs and offer candid, tactical advice from our founders (who have been through it) and our team (who advised along the way).
The seed funding environment is vastly different than it was five years ago. Companies are waiting longer to raise and when they do, they’re securing bigger initial rounds. And though, at 4,000 in 2018, the number of seed rounds is higher than a decade ago, that number has fallen since a peak in 2015. As the most active early-stage investor in New York, and like any other seed firm, we’ve stayed on our toes, reacting to an ever-changing fundraising environment and learning from each round we participate in to better equip ourselves for new ones.
But, what does this new early-stage fundraising landscape mean for first-time founders? As an entrepreneur goes out to raise in the year ahead, she’ll encounter a macro environment where there are fewer, bigger seed rounds along with all the regular nuances involved with pitching a company. To help entrepreneurs navigate the early-stage fundraising process in 2019, we asked the experts: our founders who raised a seed round within the last year and our team who advised them along the way.
Here’s what they both shared.
From our founders
Karson Humiston is the founder of Vangst, a recruiting platform for jobs in cannabis. She raised a $2.5M seed round in March 2018.
Karson’s advice: Don’t overpromise potential investors.
If you find yourself in a situation where you overpromised your potential investors, you need to be honest and own it. Try to avoid this situation when fundraising. If investors ask you if they are in the round and what their allocation is, take the same approach with every investor: ‘We’re still working through round allocations, I will get back to you by X date.’
Most founders are used to signing up as many customers as possible and trying to make as many customers as happy as possible. Founders would never say to a great potential customer ‘no, sorry you can’t be our customer.’ In fundraising, you can’t work with everyone or make everyone happy, so it’s definitely a change!
Erik Nieves founded Plus One Robotics, a 3-D vision and controls developer for robotic automation. He raised seed funding in May 2018.
Erik’s advice: Pitch VCs with domain expertise.
The real breakthrough for our seed was in finding a VC that understood the problem we were solving. Schematic’s domain expertise around logistics meant the pitch was much more impactful. The tech and the solution hadn’t changed from the very first pitch, but once we found the right investor audience — meaning the one closest to the customer’s problem — the rest came much more easily.
Sameer Gulati is the founder of Ordway, a billing and invoicing platform for SMBs. He raised a $2.5M seed in July 2018.
Sameer’s advice: Find investors with operating experience.
It’s clear we wasted time talking to ‘spreadsheet’ investors — teams with no real operating experience. The investors that deeply understood our value proposition were people with prior operating experience. They had lived through the pain of scouring spreadsheets to invoice customers, struggled to understand disparate data sources, cleanly closing the books, and recognizing revenue in accordance with GAAP.
Britt Bunn cofounded of The Inside, a trend-spotting DTC furniture brand. She and Christiane Lemieux raised a $2.6M seed in September 2018.
Britt’s advice: Lock down a first check to shape your round.
Focus on the first committed capital to lead the way for the rest. This could mean engaging months before you officially start, finding the closest alignment, or scheduling first. Having one check from an investor you trust will help shape what you need for the rest of the round and accelerate the process.
Jeffrey Wessler, MD, is the founder of Heartbeat, a prevention-first practice for treating heart disease. He raised $2.5M in seed funding in October 2018.
Jeff’s advice: Don’t stop building while you fundraise.
Learn something from every conversation you have — even if you don’t agree in the moment, the interstitial knowledge gained will inform future perspectives and solutions to problems you didn’t yet realize existed. Don’t stop building while fundraising. If you halt everything to raise, it will re-prioritize the company and culture for the worse. It’s better to give yourself enough time to raise that you can keep the momentum of building and shipping product.
Chris Kemper founded Palmetto, a marketplace for clean energy solutions. He raised $6M in funding in September 2018.
Chris’ advice: Founder conviction closes rounds.
The key to raising a seed round is ‘you’ — the founder. It’s less about product, marketshare, sales, etc. It comes down to your character and your conviction in the company’s mission. Are you willing to do what it takes to overcome all obstacles and are you going to be relentlessly pursuing your company’s mission? If the answer is ‘yes’ and your prospective seed investors are also convinced, then you have a shot at taking off. But, remember, that’s only the beginning.
From us
Andrea Hippeau, LH Principal, supports portfolio companies including MIRROR, Vangst, LeafLink, and Heyday.
Her advice: Get to know who you’re pitching.
It is really important to do your homework before you pitch a certain VC — not only on that specific fund’s strategy, also check out the Twitter feed, Medium posts, and digital presence of the specific investment team member you’re pitching. It will go a long way to tweak your conversation to that individual. Also, don’t forget to ask questions at the end of the pitch — VCs should be pitching you as much as you are pitching them!
Julian Moncada, LH Senior Associate, supports portfolio companies like Block Renovation, Casa, Opentrons, and Drift.
His advice: Pitch big picture but show present proof points.
Early-stage investors are both looking to buy into the vision for what your company could become and evaluate what you’ve done to get you where you are today. This starts by discussing both the long-term vision you have for your company, the market, and the broader technology landscape.
One way to think about it is that when investors discuss your vision they’re evaluating the big opportunity, when they discuss the details of the present they’re evaluating the risk associated with that opportunity. Tactically, that means you should ensure you spend effort on preparing materials that cover these two things (financial models, projections, market analysis, etc) and also ensure that you budget time to cover these in your discussions with VC’s.
